Keep things separate to run a better business - Finance - column - Tutorial

Home Office Computing, March, 1992 by Linda Stern

This strict separation means that you should not keep your life-insurance policy or your children's immunization records in your home-office filing cabinet.

However, there are two situations when you can combine personal and business use of your home without losing the home-office deduction: If you operate a home-based day-care center, you are allowed to use your whole home for both purposes and take deductions on a prorated basis. And you are allowed to take deductions for space you use at home to store business inventory, such as paper supplies or laser toner, even if that space is share, as long as it is your primary inventory storage space.

Keeping a separate home office becomes a personal sacrifice when you have to purge every personal book and file, but it can deliver psychological benefits: You'll know when you are at work and when you are at home, and you'll be less likely to suffer from the always-at-work syndrome.

COMPUTER SEPARATION

Another area where you probably want to separate business and personal matters is your computer. The best answer to this--and it is one that I follow myself--is to keep two computers. Give your old computer to your family for personal use, and get a new computer that is strictly a business computer. If you do this, you will not have to keep a log of your computer time; it will be assumed that it is strictly a business computer that is fully deductible or depreciable. And you will have a backup computer to use if your business computer dies.

If you only have one computer in the house, you'll probably have to keep a log of your business and professional use, in order to write off your business percentage. But beware: This is a catch-22! Provide a log that shows you used the computer in your home office 98 percent for business and 2 percent to do a database of your compactdisc collection, and you can lose your entire home-office deduction. If you use the same computer for business and pleasure, consider putting it on a wheel-around cart that can move from room to room with you, says Perreault.

WORKING CREDIT CARDS

It's also a good idea to have a separate business credit card, for the same reasons as the business checking account--it provides a clear record of business-related expenses. Some people prefer paying the extra fees for an American Express card for their businesses; it provides an extra set of receipts in the monthly statement so expense reports are easier to compile.

Perreault also tells his clients to keep a gasoline card in their company name and to try and have all fill-ups, maintenance, and repars done on that card. That's because people who use their cars for business can often compile a higher level of deductible expenses if they track their real auto costs instead of just taking the 27.5 cents-per-mile deduction.

SEPARATION TIPS

People use lots of little tricks for keeping their business and personal finances separate. A woman I know uses two long-distance companies on one phone line: She uses Spring for personal calls and AT&T for business calls, so she knows the AT&T bill she gets at the end of the month is strictly business.